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Europe Embraces Free-Market Reforms

The American right is increasingly worried about the rise of
European-style social democracy in the United States.

Conservative columnist Charles Krauthammer refers to President
Obama’s “social democratic agenda,” while former House Speaker Newt
Gingrich warns against “European socialism” in America.

In fact, the traditional American economic model based on small
government and private initiative has been under attack for a long
time.

Europe’s social democracies themselves, however, are also
undergoing change. While the Bush and Obama administrations may
have increased the size and scope of government in the United
States, a number of European countries have turned to free- market
solutions.

True, the European left sees social-democratic Europe as the
antithesis of America’s “cutthroat capitalism.” Germany’s left uses
the term “American conditions” as shorthand for a total lack of a
social safety net.

The changes taking place
in Europe offer lessons for the United States.

In reality, the annual price tag of anti-poverty programs ($600
billion), unemployment insurance ($60 billion) and Social Security
payments and Medicare benefits ($1.2 trillion) in the U.S. is
staggering.

The American left sees Europe as an inspiration. Earlier this
year, Paul Krugman declared European social democracy as “a
success” that “demonstrates … (that) social justice and progress
can go hand in hand.” In reality, the left on both sides of the
Atlantic hangs onto an image of a Europe that no longer exists
— if it ever did.

First, in terms of social and economic policy, there is no such
thing as “Europe.” The European Union is an association of 27
independent countries that have pooled their sovereignty in a
number of important policy areas, including trade relations with
the rest of the world.

The EU “government” in Brussels remains less powerful in terms
of its competencies than the U.S. federal government, though, as is
the case with Washington, much of what the bureaucrats in Brussels
do is either unnecessary, such as regulating the curvature of
cucumbers, or possibly harmful, such as a common fisheries policy
that has resulted in massive depletion of fish stocks in the waters
around Europe.

Second, European nation-states still retain a great deal of
independence in social and economic decision-making. That
independence leaves national governments substantial room to
maneuver. Some have used it to surprising ends.

For example, seven EU countries (Bulgaria, the Czech Republic,
Estonia, Latvia, Lithuania, Romania and Slovakia) have introduced a
flat income tax, which has proven so popular and economically
beneficial that three more EU members (Hungary, Poland and Greece)
are considering it.

Meantime, the U.S. is stuck with a tax system so complicated
that the cost of compliance is estimated to reach $483 billion per
year by 2015.

Another seemingly unsolvable problem in the United States is the
country’s appallingly expensive but underperforming system of
state-run primary and secondary education. In the 1990s, one
European Union country embraced a radical reform that saw the
establishment of private for-profit but taxpayer-funded schools
that succeeded in raising education standards in both private and
state-run schools. That country is Sweden — the supposed
paragon of social democracy.

Sweden is not the only Western European social democracy with
some surprisingly free-market characteristics. The World Bank’s
annual Doing Business report, which looks at the ease of doing
business around the world, shows that while the U.S. has the
fourth-most-welcoming business environment, Great Britain, Denmark
and Ireland come in 5th, 6th and 7th place, respectively.

Are we witnessing a convergence of the two models? It may seem
that way now, but the future of the social democratic model seems
doomed. Just as the crisis of the early 1990s forced the Swedes to
curb government spending and intervention, the current crisis is
forcing the Greeks to reevaluate the balance between government
spending and private-sector growth.

The changes taking place in Europe offer lessons for the United
States. Far from being a sustainable long-term strategy for growth,
an ever-increasing public debt will eventually result in a
financial crisis. And in the time of crisis, social arrangements,
no matter how cherished and long-standing, can be successfully
reformed